football

Spread Betting on the World Cup

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Brazil 2014. The most anticipated footballing event of the sports calendar is just around the corner. The World Cup which by God’s grace, Nigeria will be crowned champions18 years on from their Olympic football gold medal. I’m sure readers of Lekanomics (link to his blog) will not be too happy with that!

A World Cup betting report by Regulus Insights has predicted around £800 million pounds worth of stakes will be placed during the World Cup. This is most likely down to the wide range of betting options available for punters to select from as they ponder on where to put their money.

The spread betting markets is an extension is this betting craze. Punters can bet on things such as, the shirt number of a goalscorer, to which two teams will make the World Cup finals and even the total amount of yards accumulated by the number of goals scored throughout the tournament.

Let me explain how the spread betting market works.

Let’s use the total corners market as an example. Currently, this market is being quoted at 643-653. What this means is that you can decide to ‘sell’ at 643 or ‘buy’ at 653.

If Josh Capital believes there will be more than 653 corners in the tournament he will buy at 653, equally, if he thinks there will be less than 643 corners he will sell at 642. What does that mean in practice?

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As you can see in the diagram above, the market can be highly leveraged and an investor’s mentality should be applied – only stake what he/she sees as as a comfortable amount to lose. Take a long term approach to the tournament – assess how the favourites (and England) perform, the leniency of the referees and other factors which could affect the final scoreline.

Good luck to everyone who has money on the tournament – let me know how well you do!

@capitalmoments

The most lucrative game in football

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Before you read on ask yourself the following two questions. Would you rather be an unused substitute in the Champions League Final or score the winner in the Championship Playoff final? then ask yourself this which club would you rather own – the runner up in the Champions League Final or the Championship Playoff final winners?

This Saturday 2 football finals will be played, both having monumental levels of importance for different reasons. Firstly and in the eyes of the majority more importantly, the Champions League Final will be played between the two Madrid rivals – Real and Athletico. Who will be crowned the best team in Europe? Secondly we have the Championship playoff final between Derby and QPR to see who will be the third promoted club to the Premier League alongside Burnley and Leicster. Congratulations to all 4 clubs and the best of luck in their respective games…

But lets get into this post. You must think I’m crazy for even mentioning the latter two clubs in the same sentence as the madrid heavyweights, but this saturday in my eyes they will be just as if not more important for financial reasons. The Championship play-off final is the most lucrative one-off fixture in football and sport more broadly, and this year its more expensive than its ever been. It is an astounding 90 million more than second place – Floyd Mayweather’s earnings of £48m which he obtained fighting Canelo Alvarez last year, and 13 times the £10m you obtain for winning the Champions League! This figure could even get better as this accounts for the worst case scenario of relegation straight after promotion. There is a lot at stake literally and the pressure will be on both teams to secure their place with the big boys next season.

Let me break down this figure to see how it all adds up.

•£62m of Premier League prize money even if finishing bottom of the Premier League next season

•£72m over four years which is expected to be made up of parachute payments of roughly £26m in 2015-16, £22m the following year, and £12m in each of the two years after that. This almost certainly will rise if the club doesn’t get relegated due to the continual evolution of the Premier League brand as it looks to rubber stamp its position as the best league in the world which will translate into increased earnings via TV income, Sponsorship contracts and match ticket prices

it is true that the step up requires heavy investment into the squad through transfer fees and wages (but in Derby/QPR case FFP regulations will prevent them from going overboard: see here and here) however that is not always the case for all promoted clubs. Let me use Southampton to make my point….

Key financial highlights for Southampton:
•Total revenue increased 213% to £71.8m (2012: £22.9m) with average league attendances up from 26,427 to 30,807
•Broadcasting income grew from £5.6m in 2011/12 to £46.9m in 2012/13
•Matchday income of £11.8m in 2011/12 has risen to £16.9m in 2012/13
•Commercial income increased from £4.8m in 2011/12 to £6.7m in 2012/13
•The loss before interest and tax has reduced to £6.6m (2012: £11.9m loss)
•Total group wages, including player wages, increased to £47.1m in 2013 from £28.7m in 2012
•Expenditure on the total training ground project now anticipated to exceed £30m. The first phase of the build is expected to open this summer

From the highlights above we can see how much of a positive impact being in the premier league has has on finances, but also on the long term strategy to the club by actively investing in improving the training facilities – something they probably wouldn’t have been in the position to do a few years back when they were in the 3rd tier of English football.

However you look at it, winning the play-off brings a massive windfall, a windfall that next season will be £134m…. Now ask yourself the same two questions I wrote at the beginning of the article and see whether your answer changes. Mine did!

@CapitalMoments

What’s PSG to a City like me

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There’s a new term which is taking the football world by storm – no it’s not Crystanbul it’s FFP, otherwise known as Financial Fair Play. This week Manchester City rejected the punishment equating to 49 million and a 21 man squad size restriction proposed by football’s European governing body UEFA for breaking the FFP rules. Before I start I’d like to congratulate Manchester City on winning another Premier League title this season – a fantastic show of mental and technical ability over the course of the 38 game marathon.

I’m not going to go in to too much detail Lekz has already done so here but I will focus on the FFP’s definition of the ‘valuation’ of a footballer.

“Financial Fair Play is intended to improve the overall health of European club football” – FIFA

Ok the above definition doesn’t really give much away. But let’s not talk Barcelona let’s talk business. I would define a healthy business as a business that has a solid current/acid test ratio. Simply speaking that means that their Assets can, in a worst case scenario pay off all the liabilities. Now let’s transfer that to football. Financial health is defined in a nutshell by spending within your means – so clubs can’t spend ‘much’ more than what they make. The rules have been drawn up to primarily avoid another Portsmouth/Leeds situation and secondly try to even out the playing field and increase competition. This is not a knee jerk reaction by the top dogs; it had been on the pipeline for years and it’s importance should not be dismissed. Something needed to be done to ensure that the astronomical fees and wages received do not become over-inflated.

Clubs with poor financial management aren’t expected to work miracles overnight also – the rules will be phased in over the following years to come. By 2018, it is expected that clubs would only be allowed to make losses amounting to 25million. But that being said, projects relating to youth development and infrastructure amongst other things are exempt from the rules. Also the value of a player (Asset) who is bought is amortised over the life of his first contract. Let me explain…..

Arsenal sign Josh Bright from Capital Moments FC in the summer of 2014 for 100 million on a ten year contract. Arsenal agree with Josh to pay him 5 million a year. That means that every year for the next 10 years he will cost

100million(value of transfer)/10years= 10m + 5million = 15 million each year. The longer an asset is held the more it depreciates (loses value). The FFP’s definition of the ‘value’ of the player in 2014 is 15m, even though he was bought for 100m.

If however 6 years through Real Madrid decide to put in a 72.5m offer for Josh, Arsenal now have to pay up the remaining amount due to Capital Moments FC and account for any unpaid wages that need to be reported. If he left in the January window I.e half way through the season, Arsenal would make a profit of
72.5m – 40m (remaining amount due) – 2.5m (half of Josh’s wages for the season) = 30m

Simply put the way that annoying uncle that always comes over to watch football at your house because he removed his sky subscription explains players values is very likely to be different to the FFP definition. The length of a contract and the wage bill of clubs are just as important as the agreed transfer figure.

It will be interesting to see how the FFP develops. From the outset it looks like a great idea to ensure the long term stability of football clubs – the FA have implemented the FFP all the way down to League 2. An issue I see straight away is that many clubs, especially the privately owned ones may continually attempt to game the system. There will be a lot of investment by some of your bigger clubs into finding loopholes in rules implemented. Both Manchester City and PSG are believed to have broken the FFP rules with sponsorship deals related to each clubs’ owners.

Abu Dhabi-owned City have a £40m-a-year deal with Etihad Airways, while Qatar-owned PSG have a backdated deal with the Qatar Tourist Authority worth up to (£165m) a year, which UEFA valued at about £100m. To be honest putting a valuation on these deals will be very difficult, however UEFA feel that these clubs are using affiliate sponsorships to get around the FFP, creating a sense of an indirect financial doping issue.

Another question I do have is whether the fixed depreciation on the value of a player each year is the best method. Players peak at different ages depending on the position they play, and the value they may contribute to the club in year 2 may be very different to the value in year 5. But then judging the “market value” of a player is like beating me of FIFA on the PS4 – Impossible!

I will be going on @Thetopcorner to talk about finance in football so watch out for that soon! Capital Moments website coming soon also…

@capitalmoments